The discussion started with Jayalalitha’s election freebies in Tamil Nadu. The state is providing subsidies and freebies to anyone and everyone in a quest to rule for a few more years. All this measures aiming at public welfare are fine asssuming you have got the money to do all these things. But, the reality is not that – this is all debt money and loss distribution. Let’s say the cost of electricity production in India is 12 rupees per unit. This means that, for electricity department as a viable entity, the cost of sale should be no less than 14 rupees. But, we are seeing that it is actually 6. This means that 6 rupees is the loss to exchequer and 2 rupees is the perceived loss and write off. Now, the question is this. Where am I getting those six rupees from – someone is paying that money – is it central government funding, is it loans, is it increased revenue? Increased revenue is the only real pot we have got here – either by increase in real wealth or increase in taxation. Rest all of them point to sovereign debt – you are depleting your surplus. And at one point, you will be forced to take debt, either from public by issuing bonds, from banks or even other countries. This clearly means all the showoff is just a paper showoff, running this facade of lies through debts. For instance, Tamil Nadu’s public debt increased by 92% in the last five years(doubled).Such a dangerous situation, is it needed, first of all.
Having a comparision of the top fifteen global economies(PPP) in terms of percentage of global debt(CIA World Fact Book), this is what we are seeing.
|Country||Debt as % of GDP(2015)|
The numbers reveal one important thing – none from the Cold War America block save South Korea(foreign military bases in exchange for goodies) and Saudi Arabia(too much oil) are responsible, with America(73.6%) being the best performer and Japan(227.9%) being the worst performer. From the perspective of economic performace, Japan looks responsible even with these numbers, but the real troublemakers are the European countries where giants like Italy and Spain almost toppled and France blinked. On the other side, Communist and non-allied countries fared much better in this regard. Is it because of non-availability of funds, is it because of cautious governments, better not to speculate.
There are a few honorary mentions – two from the Cold War America block again – Pakistan and Greece and one, an example of how a country can be destroyed – Zimbabwe.
Greece was a a failed economy by mid 1980s due to economic mismanagement. But, the entry into EU gave it another breather of life. But, old habits die hard. With the money pumped in from EU, it put a facade of wealth. But, as the public debt kept on piling up, it simply lifted it’s hands one day and surrendered. Japan being a more robust and larger economy still survives the pressure but a small country like Greece was not able to take the pressure.
Next comes Pakistan, a country formally a democracy, but in reality, a military dictatorship. For military to have legitimacy, it should have a bogeyman which, for them, ironically, is India, a country which they can never match in any aspect. Unable to match the rise of India, the country diverted huge amounts into defence expenditure, both from national budget and from foreign funding. The rise of public debt from 50.4% to 64.8% of GDP in just three years is a clear indicator of it’s economic performance – either the GDP shrunk considerably or the government started taking loans from anyone and everyone in an attempt to maintain the facade. If the same scenario continues, it’s not long Pakistan goes the Greece way.
Zimbabwe is an interesting case. It is a textbook example of how you can destroy a country. The President is a rabid anti-American. This means that countries talking with Zimbabwe are few – there is no money at all. This forces the government to fund the country through loans and compounded with not so great governance, the result is a failed state called Zimbabwe, issuing one of the highest denomination notes of all time.
Some countries like Saudi and India are fast climbing the ladder, the first in a quest for survival and the second, in a quest for development. Does this mean there are going to be sovereign defaults, wilful default without concern for the aggrieved, it’s going to be interesting to watch.